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Growth fallacy: A deception of ZSE

By Valentine Muradzikwa

DURING the flowery days of irrational joyful enthusiasm on the Zimbabwe Stock Ex
change, characterised by the renowned sextillion cheques, there were many ideas
mooted to siphon money from the exchange.
In theory the stock market is a place where an investor puts his money which in
turn is used to finance industry but in practice then, it was a haven for the sa
fe storage of "burned cheques".
With the topical Global Competitiveness Report 2010-2011 (World Economic Forum o
n the September 8) ranking Zimbabwe 136 out of 139 there is surely nothing to bo
rrow from home in terms of an investing doctrine.
An assessment of the second largest exchange (after Johannesburg Stock Exchange)
in Africa highlights the true performance of the faltering yet once robust exch
A sweeping historical analysis reveals the wavering limps of a weakened novice i
nvestor from the onset of the year.
The introduction of the Indigenisation Act, Indigenous and Empowerment (General)
regulations 2010 have had a stifling effect on the overall vibrancy of the mark
In the week ending February 19 the top movers were Pioneer, National Foods, and
NicozDiamond which had percentage gains of 43percent, 13 percent and 12 percent
with the trio closing at 30c, 130c and 28c respectively.
The inflation super hedge, Old Mutual was pegged at 149c as it traced sharp gain
s on the dual markets of Johannesburg Stock Exchange and London Stock Exchange a
s the debilitating effects of the PIIGS (Portugal, Ireland, Italy, Greece and Sp
ain) debt crisis weakened.
In the same week a good 35 counters were sliding down the ladder a strong indica
tion of the dominance of the bears.
The overall turnover in the same week was US$7,7 million with the value traded u
pwards adding to US$654 699,79 vis-a-vis the downward track of US$4,48 million f
urther confirming the bearishness of the market.
With the Zimbabwean economy having recorded growth estimated at 3 to 4 percent t
he lack of funding to further stimulate production and hence overall industry ca
pacity utilisation has remained the greater curse.
Though prices have remained fairly stable, like a virus creating antibodies, inf
lation has proved paradoxically to be an engine of deflation.
An increase in prices chokes off demand in an effort to push volumes hence produ
cers and distributors are pushed to reduce prices.
Reasonable stability of prices is a potent force for economic expansion as the m
arvels of compound interest are not overtaken by the evils of declining money va
As sanity reins, our stock market punters no longer horde in their legion of voc
abulary, which covered terms like "burning", "quick-buck", or "briefcase busines
s empires".
The term "speculate" as it has been coined in various scenarios, the traces mark
ing the beginning of a painful financial crisis in 2003, which has imparted an a
ura of shadiness, of gnome-like intrigue, even of rank treachery.
One is quickly reminded of the stubborn fact of financial chronicles which have
been splattered by the glittering bubbles, of many different shapes and sizes, b
lown up by the desire of the many to emulate the few.
The Zimbabwean Stock market against all expectations has never been a true prese
rver and enhancer of capital.
It has mischievously proved an utter disaster to the ordinary man who has sacrif
iced in the bygone era his/her hard earned quadrillions in Zimbabwe dollars to e
arn a dollar only to end up with portfolios worth mere cents.
When I received my portfolio update from my broker (whom I will not name) it rea
d like Hiroshima-Nagasaki inventory, it had the same effect on me as a "Dear Pau
l" letter from a deserting fiancée.
The value of the trillion Zimbabwe-dollar worth portfolio I had sacrificially bu
ilt was worth a mere US$50.
Being the careful risk averse investor from the "heads I win, tails I do not los
e too much" school of investment I could feel the pinch of the lifetime robbery.
I was quick to recall from the ace of security analysts Ben Graham, who holds th
at the prime target of the investor must be to actually avoid losing money and I
felt like a drenched financial war victim.
It is paramount that the investing culture still proliferates in the nation.
However, what has caused grave concern on the noble Indigenisation Act as with m
any other noble pieces of legislation and many others to come has always been th
e implementation part.
How then does one monitor the observance of the 51 percent-49 percent ratio main
tenance mandate since these shares will be traded on a willing buyer willing sel
ler prerogative.
In spite of the extreme liquidity crunch which saw the exchange opening at US$1,
3 billion, it has since pushed the capitalisation levels to around US$3,2 billio
As of the week ending September 10, the market capitalisation improved to US$3,6
3 billion from US$3,61 billion with the mainstream industrial index pegged at 13
2.89 points, resource index at 134.42 and mining index at 130.36 points.
The main investment options in the Zimbabwean market from 2008 had been mainly t
he property sector, currency market and the stock exchange.
The marketâ s false anomally of a hedge against inflation was presented as the messia
nic route and many an investor fell for the conmanâ s ultimate coup â we deceived oursel
A legion who had built portfolios with sextillions of local currency have only a
paltry US$1 if any in their lean purses.
To instill a sense of fairness in the investment game, we need more players. Cur
rently the exchange has a monopoly in terms operations, we need new competitive
players coming in to set up similar structures.
If we were to have three or so exchanges including an Agricultural Commodities E
xchange it would go a long way in proffering options for the fervent investors.
Optimal performance of an exchange is directly correlated with overall economic
The Zimbabwe Stock Exchange has been starved of new listings for a while now.
Companies have been mainly concentrating on rights offers of late, NicozDiamond,
OK Zimbabwe and CFX amongst the top corporates to go this route.
These were however under-subscribed due to tight liquidity, as the market was vi
rtually dry with most of the shares ending up with the underwriter who takes up
all the risk.
We are seeing high interest rates across the spectrum because of the tight liqui
dity in the market.
Currently the once exciting terms of bulls and bears in the market have no meani
ng outside zoology.
Many have resorted to just keeping their hard-earned cash the blessing of the mu
lti-currency regime, under the mattress pulling out a note at a time.
Companies are battling with liquidity challenges, erratic power supplies, extrem
ely ballooning operational costs at the back of small margins and stagnant reven
However, for those serious about wealth creation in the long-term in the words o
f Robert Kiyosaki â Look to the north because in this country are vast opportunities
and sectors to take over territory.
The lukewarm state of the market will likely continue through to year-end, howev
er now is the time for long-term serious punters who understand the notion that
value is created over time.
Well-diversified and established companies with capacity to meet the demand of t
heir products are the best bets as the long-term hold strategy will ultimately p
The writer is an Independent Economist and Financial Analyst he can be contacted